Dividends: the yield yardstick

We generally leave turnover in Government (MGS) and corporate bonds, together with that of Treasury bills (T bills), as a virtual footnote to this report - even though the total turnover value invariably exceeds that of equities. Bonds and T bills are purchased primarily for their yield consideration.

As at last Friday's close, 5.1% MGS, maturing on August 16, 2022, gives a yield to maturity of 5.13%. This is the highest yield to maturity of all MGS, based on the Central Bank's quoted bid price of 99.67 - even if this stock traded at exactly 100. Your capital is guaranteed repayable in full in precisely 15 years' time.

We thought it relevant, for once, to apply the comparative yield yardstick to the dividends paid by four of the five largest capitalisation equities listed on the Malta Stock Exchange. These are all based on the last full financial year's dividends paid and include both gross and, where applicable, special dividends.

The dividend yield is calculated by dividing the total dividend paid by the latest price. It is factor to be given substantial weight when determining an investment policy's income objectives.

HSBC Bank Malta plc's (HSB) leads the dividend yield field with a very robust 8%. This stems from the company's stated policy to pay out 75% of after-tax profits, as confirmed by CEO Shaun Wallis to stockbrokers last Monday at a presentation of the bank's half yearly results (more about these further down).

Maltacom plc (MLC) comes in a very close second with a very attractive 7% gross dividend yield. At the presentation of the company's 2006 full year accounts on April 4, the chairman had stated emphatically that "the company is determined to continue with its progressive pay-out ratios. This is a reflection of its confidence in the company's future prospects". We have not heard that this bullish statement has, in any way, been qualified since.

Malta International Airport plc (MIA), which announced operating profits of Lm2.2 million for the six months ended June 30, 2007, is third in the rankings with a dividend yield of 5.4%. In the number four spot with a dividend yield of 4.6% is Bank of Valletta plc (BOV) which has, when compared to HSBC, a much more conservative (read: tight-fisted) dividend distribution policy. This very attractive share would lead the turnover tables if a more generous dividend policy were to be adopted.

Finally, although there is no way of forecasting the share price in 15 years' time, unlike the above-quoted 5.1% MGS 2022 which matures at par, and while regurgitating the bromide about past performance not being a guarantee of future results, it would pay you to ask your broker for today's split-adjusted prices of the only two shares available 15 years ago. Even a repetition of a mere one-tenth of the tax-free capital appreciation would be comparatively spectacular.

Turning now to last week's equity results, it was a much-needed breath of fresh air to see turnover, at three and a half times the previous week's, reach a level of Lm794,529 - its highest level in fourteen weeks.

The catalyst was HSB's results, published after the close of trading on Monday. They showed a pre-tax profit of Lm25.3 million for the six months ending June 30, 2007 - a 23.1% increase over the same period in 2006. Earnings per share increased 24.9% from 4c6 to 5c7. Net interest income increased by 19.1% to Lm27.2 million, while non-interest income was virtually static with a minimal rise of 0.78%. Net operating income was up by Lm4.5 million or 11.8%, compared to the same six-month period last year. The increase in administrative expenses was a contained 2%.

For the six months ended June 30, 2007: a) the bank's cost-to-income ratio improved strongly from 45.5% to 40.1%; b) customer deposits increased by Lm42.8 million to Lm1,518.3 million; c) loans and advances to customers increased by 4.4% to Lm1,175.4 million; d) total assets increased by Lm144.1 million to Lm2.03 billion.

The board is recommending an interim gross dividend of 6c6 per share together with a special dividend of 4c gross per share. This total interim gross dividend of 10c6 will be paid on August 22 to shareholders who are on the bank's register by Wednesday, that is, those who purchased shares by last Friday.

Positive expectation kick-started activity in HSB on Monday with a healthy 45,481 shares changing hands on the day. The price moved up from a Lm1.951 open to a Lm1.965 close. On Tuesday, as expected, HSBC was humming with activity on the back of its excellent results. It raced up 3c5 to a Lm2 open, rising to an intra-day high of Lm2.025. However, selling pressure pushed the price back to a Lm1.994 close. The elation had, most surprisingly, all but dissipated by Wednesday's trading, which took place mainly at Lm1.989.

On Thursday, HSB stayed in a very narrow range of Lm1.989 to Lm1.993. Oddly enough, on Friday, the last day one could purchase HSB-cum-dividend, the price started to slip gradually, sliding from a Lm1.992 open to Lm1.965. Yet, 30 seconds from the close, the price was back at Lm1.985, making HSB the only equity to end the week in positive territory, with a gain of 1.8%.

The week's turnover of 182,303 shares for a value of Lm361,932 accounted for 47% of total equity turnover by value. At the end of trading, bids for just 51 shares were at Lm1.95, while the best offer for 1,432 shares stood at Lm1.985.

BOV opened and closed the week unchanged at Lm3.60. However, in between, it slipped to a Lm3.58 close on Monday on low turnover of just 1,983 shares, and had its lowest close of the week on Wednesday at Lm3.57, returning to Lm3.58 by the end of Thursday. Friday was by far the busiest day in exactly three months, as the equity traded solidly at Lm3.60 in heavy turnover of 29,613 shares for a value of just over Lm106,000.

In total, 55,199 shares were traded for a turnover value of Lm198,446 - a distant second to HSB. At the end of the week total bids for 3,400 shares were at Lm3.57, whereas offers of 4,496 shares started at Lm3.60.

MLC's turnover for the week totalled 40,219 shares in 28 deals with a total value of Lm57,085.10. It dealt in a very narrow price range of Lm1.414 to Lm1.42, closing at the latter. At the end of trading, best bids totalled 809 shares at Lm1.401, with a supply of 6,700 shares at Lm1.45.

On Monday, the company announced that the board would meet on Thursday, September 20, to discuss its half-yearly financial statements for the period January 1, 2007 to June 30, 2007.

International Hotels Investments plc (IHI) first traded on Wednesday, starting at €1.03, rising to €1.05 by the close. It was moderately busier on Thursday, again closing at the same price, but dropped two euro cents in a single deal for 25,000 shares on Friday. It therefore closed 1.9% down to earn the week's wooden spoon.

MIA first traded on Tuesday at Lm1.35. It was significantly more active on Thursday with 20,700 shares negotiated, as the price maintained the Lm1.35 mark

At the end of Friday's session, best bids were for 2,000 shares at Lm1.34, while offers for 990 shares started at Lm1.35.

Activity in FIMBank plc (FIM) plc consisted of just one matched deal for 50,000 shares on Thursday, stable at US$1.95.

On Monday, Lombard Bank Malta plc (LOM) announced that its wholly-owned subsidiary, Redbox Ltd, had that same day, entered into an agreement with the government of Malta to acquire 25% of the paid-up share capital of Maltapost plc, subject to Cabinet approval.

The acquisition will raise the shareholding of Redbox Ltd to 60%, effectively resulting in Maltapost becoming a subsidiary of Lombard Bank Malta plc.

This gives Lombard an instant national network through Maltapost's branches and puts it on a virtual par with BOV and HSBC in terms of number of outlets.

On Tuesday, just 498 shares traded 6c lower at Lm4.94. Wednesday surprisingly saw LOM crash 29c - or 5.9% - as a sale order for just 750 shares was offloaded at the only tradable bid price of Lm4.65. In a total turnaround on Thursday, LOM catapulted 7% to the top of the allowable trade range of Lm4.975, on turnover of 10,000 shares. It did not trade again, to close the week 0.5% lower.

GlobalCapital plc was stable at Lm1.90 in a single deal for 480 shares on Wednesday and 165 shares on Thursday. On Tuesday, the company announced that one of its subsidiaries, GlobalCapital Investments Ltd, has acquired a licence to transact the business of a financial institution in terms of the Financial Institutions Act, 1994.

Plaza Centres plc only dealt on Tuesday in one deal for 2,000 shares at 68c, down one cent. On Friday, after the close of trading, the company released its interim results for the six months ended June 30, 2007. These show a 12.7% increase in pre-tax profits to Lm238,917 and a 21.4% increase in earnings per share from 1c4 to 1c7. Occupancy levels during the period was 100%. The directors do not recommend the payment of an interim dividend.

Simonds Farsons Cisk plc traded on Tuesday at Lm1, closing at a 2007 high of Lm1.01. It only traded again on Friday, first at Lm1.01 and then at Lm1.00 to end the week flat.

Datatrak plc traded on Thursday. It started out a cent higher at 24c but fell back to 23c to close flat. Turnover was restricted to 2,800 shares.

In the Government bond market, turnover by value reached Lm2.8 million with 33 deals completed. In the corporate bond market there were 30 deals for a total turnover value of Lm92,268. Turnover value in the T bill market totalled a mere Lm13,615.

Financial Planning Services Limited is licensed by the MFSA to provide investment services, including stockbroking (IS/3608). The company is involved in acting as sponsoring and corporate stockbroker. The directors or related parties, including the company, and their clients, are likely to have an interest in securities mentioned.